Stellar fourth quarter gains for U.S. stocks capped an exceptionally strong year in which several major indexes climbed to record highs. A strengthening economy helped equities shrug off a federal government shutdown and debt ceiling showdown in October. The Federal Reserve's mid-December announcement that it would begin to taper its asset purchase program in January was well received, with the Fed assuring investors that smaller purchases will provide appropriate stimulus. Large-cap shares posted the biggest gains, followed by small-caps and mid-caps. As measured by various Russell indexes, value stocks narrowly outperformed growth stocks among small- and mid-caps, while large-cap growth stocks fared marginally better than large-cap value shares.
The Growth & Income Fund returned 10.77% in the quarter compared with 10.51% for the S&P 500 Index and 9.52% for the Lipper Large-Cap Core Funds Index. For the 12 months ended December 31, 2013, the fund returned 32.95% versus 32.39% for the S&P 500 Index and 31.82% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 32.95%, 17.80%, and 7.12% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2013. The fund's expense ratio was 0.69% as of its fiscal year ended December 31, 2012.
For up-to-date standardized total returns, including the most recent month-end performance, please click on the Performance tab, above.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
Portfolio performance was positive across all sectors, with information technology (IT), consumer discretionary, and industrials and business services our top-performing sectors for the period. Utilities and consumer staples managed more modest gains. IT is among the portfolio's largest sector positions, and we are focused on services companies that stand to benefit from increasing demand for business technology solutions. The portfolio remains underweight to energy, as we expect prices to decline over the long term due to growing supply in North America. There are opportunities, however, in companies exposed to North American shale oil, where we like names with low-cost structures, access to reliable and high-quality energy sources, and solid production growth.
We remain reasonably optimistic about U.S. equities in 2014, but expect a slow growth environment. The housing market is gaining momentum and credit growth is rebounding. North American crude oil production is driving down energy costs, and the budget deficit has been largely resolved, at least for the near term. Since these factors bode well for U.S. companies, the portfolio is tilted toward cyclical growth to take advantage of market appreciation in an improving economy. While valuations have become somewhat stretched, equities are attractive relative to other asset classes and inflows should be steady. However, we would not be surprised to see a pullback after several months of gains and are mindful of potential risks, including elections in November and the execution of tapering by the Fed.